Consulting group predicts Bush’s energy plan will be positive for utility industry

WASHINGTON, May 29, 2001 — The Bush administration’s National Energy Policy (NEP) makes a positive and substantial contribution to the US national energy debate, says a report by PA Consulting Group, a management, systems and technology consulting firm.

The NEP should elevate energy issues to the same level currently held by environmental concerns.

Prepared by PA’s Energy Industry specialists based in Washington DC, the report — The President’s 2001 US Energy Blueprint – What does it mean for the utility industry? — concludes that the Bush Plan positions the energy debate correctly at the heart of both demand and long-term supply issues. The report comments that the NEP “is a balanced supply-demand analysis that focuses heavily on infrastructure and new technologies.” The NEP is a clear reflection of the significant shift toward markets in the energy sector and the Bush Administration’s belief in market solutions, says Ed Kee, senior energy consultant at PA. The NEP largely seeks to remove impediments to the market, rather than impose controls. This reliance on markets has led some reviewers of the NEP to focus on the lack of energy price controls. PA’s report suggests that current high electricity prices will drop, as the power plants now under development and construction become operational.

The White House plan could have been a lot more specific about demand-side actions and misses entirely the potential for market-based energy efficiency solutions, according to the PA report. “While favoring competition, the NEP seems to deal only lightly with the fundamental change that is taking place in the electricity industry.” Before the end of this term, President Bush will probably see no drilling in the Arctic and no new nuclear power plants built. But “issues like FERC reform and repeal of the Public Utility Holding Company Act which are already underway will have started being addressed and their impacts will be felt.”

Most significant is the NEP’s recommendation regarding federalizing electric transmission siting. This could “go a long way towards removing some of the most significant barriers facing new transmission investment,” adds PA energy strategist Alain Streicher. But state and local Nimby (not in my back yard) and Banana (build absolutely nothing anywhere near anybody) sentiments continue, and the recommendation for federal siting of power lines is likely to pit states against the federal government.

The Bush plans for transmission — the heavy reliance on government intervention and investment, including a conservative Administration using federal funds to resolve transmission constraints — is not without its political irony. In view of the current lack of federal transmission siting authority, PA’s report comments that “this may have been viewed as the most expedient way in which to deal with the need for greater transmission investment, particularly in the West.”

PA’s report notes the resurgence of coal in the Bush report, as an important fuel for meeting increased electric demand over the next 20 years. “The NEP clearly recognizes that increased use of coal is crucial to meeting the nation’s growing electric needs and accords coal a prominent place in our energy future.” Streicher comments: “This is a change from coal’s status over the past decade as a pariah fuel that pollutes the environment, causes global warming and should be replaced with natural gas.”

The NEP suggestions that the EPA ease off on the enforcement of the New Source Review (NSR) requirements may, in PA’s opinion, provide the power sector with more certainty on NSR issues, so that sensible investment decisions can be made. But there is a concern that the NEP may be pushing too far away from a long-term position on environmental issues, in particular with regard to the Kyoto requirements and multi-pollutant control.

The NEP has already had a positive impact in the energy industry by putting coal and nuclear back into the general energy debate. Even before any legislation or other actions are initiated, the Administration’s positive public statements have been invigorating for these industries and have shifted the debate. However, the real outlook for investment in these two critical energy sources will not be clear for some time and will be shaped by Main Street and Wall Street, not Washington.

To contact the authors of PA’s report, The President’s 2001 US Energy Blueprint – What does it mean for the utility industry?, and for copies, please contact Kara Stecker at 202-828-3958 or at [email protected]

This report was written by various members of PA’s Energy Management team, including Jean-Louis Poirier, Jamie Heller, Jim Speyer, Joe Graves, Edward Kee and Alain Streicher.